Markets soar amid economic optimism and Trump’s pro-growth policies

• S&P busts up and through 6000!

• SMIDS now up 19% ytd.

• Bonds stage a small rally, yields decline.

• Gold and Oil is under a bit of pressure as the dollar continues to rally.

• Try the Roasted Thanksgiving Turkey.

Stocks continued to rally closing out another blockbuster week – driven by better eco data, ongoing better than expected earnings, FED rate cut, a falling VIX and the idea that Trump’s pro-growth policies will support a stronger economy and strong corporate earnings in the year ahead. More than $20 billion has flowed into stocks in the days after the election and that has fired up a rally, not to be believed…… The Dow added 260 pts or 0.6%, the S&P gained 23 pts or 0.5%, the Nasdaq added 18 pts or 0.01%, the Russel up 17 pts or 0.7%, the Transports gained 144 pts or 0.8% while the Equal Weighted S&P added 40 pts or 0.5%. 

Now ‘a funny thing happened on the way to the Forum’ – recall what I said to you on Wednesday morning – when futures were screaming higher post the election results…. I said:

“The S&P closed at 5782 – up 70 pts (on Tuesday evening) and this if futures are any indication of what is going to happen next – we can expect the S&P to open 130 pts higher…. taking us into yet another new century….5900!  Recall – most estimates are calling for S&P 6000/6200 by year end…. if the excitement continues – we should hit that by end of week.”

And that is exactly what happened…. the S&P blasted thru the 5900’s in just 3 days and then right into another new century – 6000 at 2:58 pm on Friday…. trading as high as 6012 – before settling in just below that century mark.   

SMIDS (Russell Small and Mid-Caps) which had been up 10% ytd going into the election – have been the biggest beneficiaries and are now up 19% ytd….- surpassing the Dow Industrials that are up 16%, leaving it just behind the Nasdaq up 28.5% and the S&P up 25% ytd.  The move being credited to what is expected to be lower rates, less regulation (but Neely Kashkari just poo pooed that idea – see below) and protectionist policies (think tariffs) by the new Trump administration.   In any event – it was an amazing week for stocks and investors, but no one should be surprised if we get a brief pause over the next couple of weeks ahead of what could be another year end surge.

Sector performance of the 11 S&P sectors saw  Utilities in the lead + 1.9% -the strength in utilities this year (+25%) is more about AI and data center demand than anything else , Real Estate +1.7%, Consumer Discretionary + 1.4%, Consumer Staples +1.2%, Industrials + 1.1%, Financials +0.9%, Healthcare + 0.7%, Energy +0.7%.  We also saw strength in Energy Explorations and Production – XOP + 0.7%.  The Triple levered S&P long ETF – SPXL gained 1.2%, Disruptive Tech – ARKK + 2.6%, while Aerospace and Defense – XAR gained a whopping 3.5% - taking it up 24.5% ytd - and that speaks volumes.  Names like LMT, RTX, CW, all up better than 2.5%.

Now – all the gains do not mean that there weren’t any pockets of weakness because there were…. Tech lost 0.1%, Communications lost 0.5% and Basic Materials lost 0.9%.  We saw semis under pressure – SOXX – 0.7%, Cybersecurity – 0.1%, Metals & Miners – 0.4%.

Bonds had a good couple of days after getting slammed in the weeks following JJ’s September Jumbo rate cut………. The TLT gained 1.3% on Friday and 3.8% since Wednesday.  The TLH went up 0.9% on Friday and gained 2.7% since Wednesday.  The 2-yr ended the week yielding 4.25% down from 4.3% while the 10 yr is yielding 4.30% down from 4.46%. These higher yields doing little to cause investor angst – because in the bigger scheme of things, they are not usurious just yet….in fact – it would be difficult to say they are anywhere near usurious – but if all you know is 0% rates – then yes..it does look a bit expensive….but let’s be honest – the market recognizes that 4.3% rates are not a disaster at all. 

But if the new administrations spending plans are not offset with spending cuts, we will see the budget surge even higher than it is and that will force bondholders to demand more in yields to compensate for a surge in ‘supply’ of bonds….Remember – Janet will have to bring even more bonds to the market to fund the deficit and that will cause bond prices to fall and yields to rise (it’s simple supply/demand economics)…..and higher yields is the way the bond market imposes fiscal discipline on the gov’t. I would not be surprised to see us test and kiss the 5% level at some point and if we do, then I would also expect stocks to struggle.   

On the other hand – on Thursday we heard JJ tell us that the FED was comfortable cutting rates by another 25 bps, while promising nothing about the future – reminding us that it is all data dependent…..but on Friday we did hear from Neely Kashkari – a non-voting member of the Fed that told us that the ‘stronger economy could mean fewer rate cuts’ but that did not seem to cause any angst yet….his argument is clear.

A stronger economy and higher productivity growth may drive the FED to cut interest rates LESS than previously expected (200+ bps) because the economic policies that are coming from the Trump administration and the new Congress may stoke inflation.  Now let’s be clear, it is too early to tell but if it does it could lead to fewer rate reductions.  So, the sense is that for now the FED is in wait and see mode and will remain there until they see what policies actually materialize.   

What about the Dollar?

The Dollar has had a significant rally +5% off the September low – when the currency markets started to price in a Trump win.  It is now above all 3 trendlines at 105.33 and is about to test the June high of 106….The stronger dollar has put pressure on commodities – the BCOM (Bloomberg Commodity Index) is now down 4.7% in that same time frame and any dollar push higher will put more pressure on commodities.  Recall their inverse relationship…. stronger dollar = weaker commodities and weaker dollar = strong commodities.  Weaker commodity prices will also be good for slowing inflation, so there is a silver lining here.

The move in the dollar can also be seen in the move in gold – Gold is down 4.7% just in the past week – after the GOP win….but you say – Gold rallied during the month of October when the dollar was also rallying….That is true, because gold also serves as a ‘safe haven’  asset….so when there is angst around the world (think global unrest), we will see investors flock to gold – something that has happened all year, – but when that angst subsides – then the Gold/dollar trade adjusts…Which is what we are now seeing – a Trump win is seen as a positive for all of this global unrest – as he has promised to end both wars…..   The move lower – 4.5% took gold right down to test the trendline at 2665 before bouncing and closing at $2694.  This morning gold is down $25 – once again testing the trendline – where it seems to want to stabilize, but that depends on what happens next on the global stage.

Oil is also under pressure – (think the stronger dollar and supposed weakening demand).  Oil is once again trading below all 3 trendlines at $69.17 – down 1.7% overnight.  Over the weekend – oil traders had a chance to assess the latest Chinese stimulus measures, and they are disappointed…. suggesting that these measures will not increase Chinese demand.  In addition – recall that Trump wants to ‘drill baby drill’ and that is also putting pressure on oil as it suggests more future supply and that should help lower energy prices that will help to cool inflation – think lower transportation costs, lower utility costs.   

This morning futures are trading higher again….…. Dow futures +170, S&P’s +17, the Nasdaq +50 while the Russell is up 32 pts. Now, I would be careful not to chase names up here….but if you are just getting in - go easy….and if you are already in, then celebrate, if you want to add more – be patient and if you want to take money off the table then hit the SELL button…

European markets are all higher as well…. up between 0.8% (UK) and +1.25% (Italy).  It is a data packed week so lots to consider.  Investors in Europe will analyze German inflation, Eurozone Industrial Production, Eurozone GDP, and UK GDP in addition to US inflation reads.  BoE Governor Baily and ECB President Christine Lagarde to speak on Thursday.

The S&P closed at 5995 – up 22 pts…. And if futures are any indication – we will pierce 6000 and test Friday’s high at 6012.  There is no eco data today, it is Veteran’s Day, the bond markets and banks are all closed, so do not expect lots of action…..CPI and PPI are due on Wednesday and Thursday this week along with Mortgage Apps, Real Avg Hourly and Weekly Earnings y/y, Retail Sales, Industrial Production and Capacity Utilization.

We will also hear from Fed Governor Chrissy Waller on Tuesday and FED Chair JJ Powell on Thursday.  

Roast Turkey

If you’re having Thanksgiving this year – try this turkey.

For this you need: The Turkey, carrots, celery, onions, butter, s&p, an apple and orange, minced garlic, sage, rosemary and thyme, chicken broth, and a splash of champagne.

Begin by rinsing and draining the “defrosted turkey” – never cook a frozen turkey. Be sure to take your turkey out of the freezer on Tuesday morning and let it sit in the fridge to defrost. By Wednesday night you should be good to go… Make sure to remove the bag with the giblets and neck from the cavity. Rinse it out and let it dry – or pat it down with paper towels. Now on Wednesday night you want to prepare it to allow it to marinate.

Mix all of your seasonings together and set aside.

Place the turkey in a roasting pan.

Next, take some softened butter and massage the turkey – breast, legs and thighs. Now rub the seasonings into the turkey making sure to season all parts. Cover with foil and place back in the fridge.

Thursday morning:

Cut up the apple and the orange into slices and place in the cavity. Rough chop the veggies and place all around the turkey and also in the cavity. Add the chicken broth and a splash of your favorite champagne – don't ask why – it’s champagne – Just enjoy.

Preheat oven to 400 degrees.

Tent the turkey with foil and place in the middle rack and let roast for 30 mins or so... now reduce heat to 325 degrees and let it cook – 12 - 15 mins per pound. So, figure it out… 10 lbs. = 120 mins/ 155 mins. (2 - 3 hrs.).

Now – remove the foil and allow it to crisp up and turn golden brown. Once done, remove from oven and let it rest for 15 mins. Keep it covered to maintain the warmth.